L03 - Reporting Process B

Question 1

⭐️Four Types of Adjustments

Answer 1

Deferred involves cash being paid or received before the related expense or revenue is recognized.

• Expense
• Revenue

Accrued involves recognizing revenue or expenses before (no) cash is received or paid.

• Expense
• Revenue

Question 2

⭐️ Four Steps for Preparing Financial Statements (5)

Answer 2

Question 3

Closing Process: Retained earnings

Answer 3

Retained earnings is a permanent Account (SE) reported on the Balance Sheet.

Question 4

Contra Accounts (+XA, -A)

• Example
• Impact

Answer 4

• Used to provide additional information, such as Accumulated Depreciation,
  a contra asset in the balance sheet, which helps estimate asset age.
• An increase in the contra asset account, such as accumulated depreciation, reduces the book value of the asset.

Question 4

How is the order of accounts for an unadjusted trial balance typically organized? (5)

Answer 4

• By listing the accounts (debit / credit balance),
• in specific sequence or structure:
  Asset,
  Liability,
  Equity,
  Revenue,
  Expence.

Question 5

Asset Life

Answer 5

Estimates the length of time an asset is expected to be useful.

• Typically asset life will be in years
• Under units-of-production depreciation method, useful life is estimated by machine output or hours

Question 6

Balance Sheet Defined

Answer 6

Statement that reports the financial position of a company by presenting assets, liabilities and equity

• at a fixed date in time
• presents accumulation of financial activity

Question 7

Balance Sheet Example

Answer 7

Presents the assets, liabilities and equity of a company at a given point in time.

• Balance sheet format similar to the accounting equation:
  Assets = Liabilities + Equity
• Assets are presented in order of liquidity and display current and long-term classification
• Liabilities are presented in the order of date due

Question 8

Closing Retained Earnings

Answer 8

• At the end of the accounting period, net income increases retained earnings, while a net loss decreases retained earnings.
• This adjustment links the income statement to the balance sheet.

Question 9

Commercial Loan (2)

Answer 9

Borrowed money appears as a liability on the balance sheet.

• Current Liability:
  Amounts payable within a year.
• Accrued Expense:
  Interest accrued at year-end.

Question 10

Cost of Goods Sold (COGS) (3)

Answer 10

• Deducted from revenue to calculate gross profit or loss.
• Includes costs like raw materials, machinery, direct labor, etc. (for manufacturers).
• FORMULA:
  Revenue - COGS = Gross Profit